Ruble Recovers on Oil as Morgan Stanley Warns of Risks to RallyVladimir Kuznetsov
The ruble ended a two-day drop and Russian stocks and bonds advanced as oil’s return above $60 a barrel improved sentiment, while a Morgan Stanley downgrade cast doubt on the rally.
The currency appreciated as much as 1 percent to 62 against dollar as Brent crude rebounded from its biggest slide in a month. Bonds advanced, pulling yields from a four-week high, and the dollar-denominated RTS Index extended the world’s largest gain this year. The Finance Ministry plans to sell 15 billion rubles ($241 million) of floating-rate notes Wednesday.
Russia’s currency should keep trading near 62.50 per dollar if oil, the nation’s main export earner, holds at about $60 a barrel, OAO Rosbank analysts said in an e-mailed note on Tuesday. While Brent rose the most since 2009 in February, it’s lost 41 percent in the past six months. The slide, along with sanctions over Ukraine, has deepened an economic slump and led two credit-rating companies to downgrade the sovereign to junk. Morgan Stanley recommended investors sell the nation’s assets.
“The oil price has reached some relative stabilization at around $60 per barrel,” supporting gains in Russia, Vladimir Vedeneev, the chief investment officer at Raiffeisen Asset Management in Moscow, said by e-mail. Along with a truce appearing to take hold in Ukraine, “these events have essentially been priced in,” he said.
The RTS will struggle to surpass 1,000 if oil stays in the $60 to $65 a barrel range, according to Vedeneev. The measure climbed 1.6 percent to 917.64 by market close in Moscow, bringing its 2015 increase to 16 percent. Brent traded 2.6 percent higher at $61.07 a barrel.
The ruble’s record appreciation in February made the currency the best performer in developing Europe in 2015, while local-currency bonds handed investors the biggest returns in emerging markets last month.
Morgan Stanley cut Russian bonds, stocks and the ruble to underweight from neutral, saying loose monetary policy posed risks as inflation accelerates. Trying to balance a looming recession and the fastest inflation since 2008, the Bank of Russia lowered its benchmark interest rate in January by 200 basis points to 15 percent.
“Further dovish policy from the central bank amid high inflation will likely increase ruble vulnerability to the external environment, with oil prices, sanctions and falling reserves being important risks for credit and local rates,” Morgan Stanley said.
Data on Thursday will probably show consumer prices increased an annual 16.7 percent in February, the fastest pace since 2002, according to the median of 21 estimates in a Bloomberg survey. Policy makers next meet on rates on March 13 and Morgan Stanley predicts borrowing costs will be reduced by 100 basis points.
While the surprise rate cut in January helped spur Russian bonds, they fell in the final week of February after Moody’s Investors Service followed Standard & Poor’s in lowering Russia below investment grade. That led Barclays Plc to predict outflows of as much as $4.5 billion from funds that track its investment-grade Global Aggregate Index.
The yield on five-year government bonds, which is up 149 basis points since the Moody’s cut on Feb. 20, fell 35 basis points to 14.22 percent on Tuesday. The Finance Ministry said it will offer the floaters due January 2020 on Wednesday.
“I think they can sell the whole thing,” Olga Sterina, a fixed-income analyst at UralSib Capital in Moscow, said in e-mailed note.
Credit Suisse Group AG recommended a “less bearish” stance on Russian equities in an e-mailed note today. Cease-fire agreements in Ukraine “could ultimately lead to a relaxation of European Union sanctions,” it said. NATO Secretary General Jens Stoltenberg said that a truce intended to put an end to the fighting in eastern Ukraine appears to be holding.
The RTS trades at 5.9 times 12-month future earnings, versus a multiple of 11.8 for the MSCI Emerging Markets Index. OAO Gazprom and OAO Magnit, Russia’s largest natural-gas exporter and food retailer, led gains in Moscow on Tuesday.